Big Risks with Popular Options Strategies - Part 2
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Overview: An overview of a couple of the most popular option trading strategies: Double Calendars and Iron Condors. He points out the risks involved with these strategies and why they may not work so well in volatile markets. Another strategy is to have your risk profile and your profit return begin to converge as time goes by. First you gain some premium near the at-the-money price and then, once again, you hope the market does what you want it to do. Some call this a Double Calendar trade. If something unexpected and unwanted happens such as a large shift in volatility, you have a problem. A previously attractive trade with a promising beginning can turn into a draining challenge you must continue to grapple with. Probably the most classic and popular income strategy is the Iron Condor. The Iron Condor is made up of two credit spreads, one on the put side and one on the call side. The intent and design is to collect some premium near the at-the-money strike that you can keep if the options expire worthlessly. Just as with the other very common trades, when the prices move a lot over time or volatility suddenly changes, what seemed like high-probability trades start to look highly questionable. If the market threatens to overrun your credit spread and it looks like you might end up losing your entire investment, you might want to close out the trade even at a loss. If the price keeps moving over time, you may have no better choice to make. The problem with all these trades is that you're completely at the mercy of the movements of the market. You hope to keep your premium when price and volatility stand still as time marches on. These common strategies are taught by most of the options trading courses and advisors out there. The root problem with these approaches is that today's market seldom stands still. There are alternative ways to structure trades so they are designed in advance to be easily adjustable, so you don't have to make adjustments in a panic. You can stay out of "panic time" troubles and collect your premium from the trade as time sails by. You can make adjustments when you're in pretty good shape and well before you're pressed hard against the at-the-money strike. These safer trades are the kinds of trading strategies that we develop and teach at San Jose Options. We've modified the standard yet dated popular configurations and restructured them. We've made them easier to manage and adjust. We've devised much safer trading strategies designed to help you sleep at night while providing very respectable returns. If you think this kind of approach is interesting, take a look at joining us here at San Jose Options and start enjoying what we call "Max Safety and Max Reward".